Last month I had the privilege to speak at Data Center Dynamics Brazil Convergence Conference in Brasilia, Brazil. Following my speech, the other speakers were from the Ministry of Energy and the Ministry of Telecommunications. Brazil, like many other countries, has a large focus on both data center telecommunications infrastructure as well as energy. The Ministry of Telecommunications stated that Brazil will invest over $14B US in telecommunications infrastructure over the next two to three years, and over $4B US in additional data center infrastructure. With that said, is Brazil a safe place to invest in data center infrastructure, especially with US companies investing in partnerships? Because of the large populations in Sao Paulo, Rio de Janeiro, as well as other cities in neighboring countries, we think yes.
A list of Brazilian colocation providers.

Table 1. A list of Brazilian colocation providers.

Over the last two to three years there has been a data center boom in Canada, especially within the Toronto area. Due to the population, financial industry as well as cool climates, Canada offers a very good infrastructure for new data center construction. While the cost per kW is higher, partly because of environmental regulations (carbon emissions, srubbers, etc.) the offset in lower PUE and other economic incentives balances the additional up costs.

Other markets such as Singapore, UK, and Hong Kong are experiencing considerable expansion in data center construction. Yet while Singapore and Hong Kong are considered growth markets, challenges remain in politics and economics.

THE DANGERS OF HYDRO POWER

The entire country of Brazil utilizes 77% hydro power from a handful of providers. This puts Brazil in the position of being one of the greenest countries in the world. I spoke with Gilberto Hollauer, who represented the Ministry of Energy based out of Brasilia. Gilberto indicated that Brazil is in the process of negotiating with the Chinese to develop off shore drilling that will produce 30,000 barrels a day of oil. This will position Brazil to be 100% self-sufficient in terms of energy use. While Brazil becomes self-sufficient, the data center industry should be concerned about the level of dependence on hydro power within regions due to droughts. In October 2012, Brazil suffered a blackout that covered almost every state, effecting 53 million people, with some outages for extended periods of time.

Other examples of power blackouts from reliance on hydro power include:

  • Toronto Hydro blackout, July 30, 2013: Toronto Hydro claimed that 17 stations were down over an eight-hour period.
  • India blackout, July 2012, 670 million people affected
  • India blackout, January 2012: 330 million people affected
  • Java-Bali blackout, August 2005: 100 million people affected

INVESTING IN PARTNERSHIPS IN BRAZIL AND ABROAD

While utility outages are important to recognize, redundancy within reliable infrastructure eases the issue of loss of utility power. The U.S. has migrated to a Tier III within several industries. Brazil and other Latin American countries previously designed their facilities in Tier I and Tier II (Uptime standards). Therefore, the overall reliability within both utility and existing data centers makes it difficult to acquire or partner due to industry standard upgrades.

Within Part III of this series, I ended my column on M&A by discussing the inability of U.S. companies to maintain growth at current economic cycles. It’s fair to reason that U.S. colocation providers will need to acquire data center assets and their related revenue streams to continue growth for the shareholders. While this sounds simple, partnering or acquiring has several obstacles including the following:

  • Cultural differences. This includes both internal and external cultures reflecting in the common practices of doing business. This specifically includes negotiations. Americans do not understand the art of negotiation like other parts of the world.
  • Construction methods. Many parts of the world have accepted the bridging concept where an American designer will create drawings to the design development level and work with local engineers on construction documents and permitting. Additionally, design/build is accepted and developers can provide a single source method of delivery.
  • Product availability. Local equipment providers within remote areas are very important to utilize. Often there may be difficulties in purchasing certain equipment sent from overseas due to tariffs and political interference. Also, materials may vary in the construction process, e.g., PVC piping for chilled water.
  • Governance and finance. Both local and national government agencies have an ongoing influence in construction practices and financing. In many cases, you will need a local or national bank to do business in that region.

CONCLUSION

Recently, Microsoft announced rolling out its Azure cloud offering within the Sao Paulo region. One of the key features of the cloud boom is to locate data centers based on population. Other well-known cloud providers have set up shop in Sao Paulo and Rio de Janeiro. It certainly seems as if the timing is right for acquisitions and partnering in this region of the world. 

To request a copy of ESD Consulting’s Brazil Technical Market Report 2014, email Paul Schlattman at pschlattman@esdglobal.com.